Yahoo Finance US Corporate Stockpiles Grow, Soaring to Record $4.11 Trillion
(Bloomberg) -- US companies added to their cash stockpiles in the first quarter, sending holdings to a record $4.11 trillion as a resilient economy and relatively high interest rates helped boost returns.
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Holdings rose 12.6% from the prior-year period, and were $1.28 trillion above their pre-Covid baseline, according to a recent analysis of the Federal Reserve’s quarterly flow of funds by treasury advisory firm Carfang Group.
Corporate cash piles have been on an upward slope since the beginning of the pandemic, with the economy’s continuing strength allowing companies to sock more money away and generate returns on short-term holdings. Even with the Fed poised to start easing monetary policy later this year, investments in cash equivalents remain attractive and can be an appealing safeguard to protect against any future slowdown.
“We are still seeing corporate treasurers building their cash buffers,” Anthony Carfang, managing director of Carfang Group, said in an interview.
Time deposits went up 46.7% from the year-ago quarter, while money-market fund holdings rose 12.4%, the analysis shows. Checkable deposits saw a smaller increase of 8.9% compared with the same period last year.
Comparing the data with the final quarter of 2023, checkable deposits in the first quarter saw bigger increases than time deposits and money-market funds, potentially indicating that corporate treasurers are expecting rates to come down, Carfang said.
Market participants are currently leaning toward two Fed rate cuts occurring by the end of the year, following monthly inflation data on Wednesday that was more benign than expected. Fed policymakers left their target rate unchanged on Wednesday, as widely expected. Fed policymakers’ median rate projection now calls for one quarter-point interest rate cut in 2024, down from a forecast of three-quarters of a point as of March.
Companies in recent months have started allocating more of their investments to corporate and US government debt, according to an analysis of about 400 corporate portfolios totaling just under $1 trillion in assets by Clearwater Analytics, a provider of investment accounting software.
They continue to hold the majority of funds in cash or cash-like instruments, generating over 5.48% in annualized returns in May, Clearwater said.
“Even with potential rate cuts on the horizon, corporations are cautiously maintaining their investments in short-term investment funds,” according to Clearwater. “At the same time, there’s a strategic move toward diversifying portfolios by increasing allocations to longer-term investments, notably corporate and U.S. government bonds.”
To be sure, for companies with higher debt burdens and slimmer profit margins, the current higher-for-longer rate environment threatens to pose a squeeze that can threaten growth or curb new investments. But for those with cash on hand, it presents an opportunity for investment gains on the margins.
Salesforce Inc., the software firm, is one of the businesses that reported higher cash levels, with holdings increasing to nearly $18 billion in the quarter ended April 30, up from about $14 billion during the prior-year period. The company has increased its cash held in money-market funds, alongside time deposits, corporate debt and US Treasuries.
“It’s been an interesting opportunity for companies and I think across the board we have benefited just as others have from the higher interest rates,” Salesforce CFO Amy Weaver said in an interview.
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